$460 Billion Bond Shortage Lifting Bond Prices – Bloomberg

By Michael Aneiro

Bloomberg’s Susanne Walker is out with a story today painting a macroeconomic backdrop that’s sure to be an ongoing boon for bonds, namely that the global supply of bonds will fall short of global demand by $460 billion this year, continuing to boost bond prices worldwide. From her story:

Debt issued by sovereign, corporate and other borrowers will decline by $600 billion to a net $1.8 trillion in 2014, as demand reaches $2.26 trillion, according to New York-based JPMorgan Chase & Co., the world’s biggest corporate bond underwriter. Demand has pushed down average bond yields to levels unseen since May 2013 as economies slow, borrowing is reduced and central banks signal no rush to start raising interest rates anytime soon.

The imbalance helps explain why most forecasters have gotten it wrong this year when predicting bond prices and yields. The market received a boost on June 5 when the European Central Bank became the first major central bank to charge fees on deposits and unveiled other plans to support an economy threatened by deflation.

The lack of available supply is one of several forces that’s kept U.S. bond yields – which move inversely to prices – from rising this year, along with abysmal first-quarter U.S. economic growth and even-more-paltry yields on European and Japanese bonds.